Analysts split on Nokia's future, though hope remains

With its share price at a 13-year low, it's perhaps difficult to imagine if Nokia can sink any lower in terms of its worth.

The latest to cast doubt on the company's hopes has been the ratings agency Moody, which last week downgraded Nokia's credit rating from A2 to A3. This followed a similar move by Standard & Poor's a week earlier.

The analyst viewpoints driving this demotion have revolved around the probability of Nokia regaining its dominant market position, given the threats and uncertainty that surround its partnership with Microsoft for the Windows Phone 7 (WP7) platform.

At the heart of this concern is that Nokia will be relegated to being a commodity hardware manufacturer struggling to differentiate itself from more nimble Asian developers that have built a strong reputation for quality and innovation--a position once firmly held by the Finnish company.

Adding salt to Nokia's open wounds was the reports that the Taiwanese smartphone vendor HTC, Asia's second-largest smartphone developer, had surpassed Nokia in market capitalization. On balance, HTC's sudden rise could be attributed to the huge demand for smartphones running on Google's Android platform, albeit that HTC's handsets are recognised for being among the best today.

Nokia's determination not to offer Android phones--at least not for now--will continue to place the company at a disadvantage, according to the research firm Gartner.

Its latest forecast states that nearly 470 million smartphones will be sold worldwide this year, a 58 per cent increase from 2010. Importantly, Android's share of this smartphone sector will grow from around 23 per cent in 2010 to 38.5 per cent by the end of this year, rising to nearly 49 per cent in 2012.

However, Gartner believes that the Nokia/Microsoft partnership does hold the potential for success, arguing that the Windows Phone platform will become the second-biggest smartphone smartphone platform after Android by 2015.

While Nokia might only grab a share of this Windows Phone market, analysts at Goldman Sachs are upbeat about the prospects. Goldman's latest analysis, from late March, has lifted the recommendation on Nokia to a 'buy,' believing that the back-to-basics strategy could re-energise the firm. Of note, the investment bank sees Nokia's partnership with Microsoft having the potential to create cost reductions of €1 billion or more.

While Goldman Sachs is almost alone in its optimistic stance on Nokia, it might signal the start of a re-evaluation of the company's future.--Paul